Gold Threatening to Displace Equities in 15 Year Analysis

January 26, 2012

It is well known fact that Indian consumers hold over $1 Trillion Worth of Gold. Their fascination for Gold is never ending. However, this has been a blessing in disguise as volatility in global economy increased and Gold became the unspoken currency standard for Trade. It is surprising to know that Gold is threatening to displace Equities as the Best Asset Class even in Longer Periods such as 10 Years and 15 Years.

Gold has outperformed other asset classes over the 5-and 10-years even as the returns are a tad lower than equities over a 15-year period. While equities are the best performing asset over 15-years, they are the worst performing asset over 1-year and 5-year period.

The following chart shows the Returns of Investing in Gold Vs Equities (SENSEX) Vs Fixed Deposits Vs Property [Not sure about the sample of Property size]

What is the Expectation for Gold from leading Institutional Investors ?
Gold has delivered positive returns for 12 out of the last fifteen years. Over the next two years, our global commodities team expects gold prices to rise another 40 percent and gradually halve by 2017 [Well, isn’t it too hard to digest that Gold Prices will Halve ?]

Bank Deposits The immediate outlook for deposits looks good but rates will likely fall in the coming year exposing investors to re-pricing risks.

Equities – Forecast FIIs expect Sensex to deliver annual returns of 14.4% over the next 10-years based on residual income model. The 5-year CAGR for the Sensex on a inflation adjusted basis has turned negative for the first time since early-2005. 2011 took real equity returns to their lowest level in a decade exception of 2008 global factors. Market positioning appears bearish and to us this adds up for possible up year for equities and may be even a return to the top of the charts across asset classes.

We @ Dalal Street do not consider Property for Investment but do believe in the concept of owning one Good Home. However, we’ll have to re-look at our strategy of Equity only investment and diversify to some extent across Metals & Minerals Commodities.